A quick look at the number of acquisitions within the communications services sector over the past few years indicates that the space has consistently attracted attention from the investment community. And while many of the private equity and other firms involved in these transactions have former communications executives on their management rosters, few are likely to have the depth of expertise necessary to fully audit the technical state of a potential acquisition target’s network. That’s where a good consultant can come in handy. And one such company says that demand for their services is only growing.
David Strauss and Jack Burton founded Broadband Success Partners in 2017 after careers in the cable MSO world. The firm provides assistance on technology, operations, finance, and go-to-market considerations for clients in the service provider, supplier, and investor sectors. This last group has become an increasingly active customer segment, the two principals report, as investors seek an independent evaluation of what might need to be upgraded in a service provider’s network to achieve the business goals that would make an investment or purchase worthwhile.
While positive word of mouth has provided one catalyst for more engagements with investors, the COVID-19 pandemic has created another. Strauss and Burton describe the current mergers and acquisitions (M&A) environment as “frothy” because the work-from-home and home-schooling movements have underscored the present – and future – value of broadband networks. “If you look at the second half of 2020, that’s when things really started to ramp up. If you look at the first week of 2021, we’re actually engaged right now in five different projects, at varying stages,” said Strauss. “If the last half of last year and the first week of this year are any indication, we’re going to see a lot of activity.”
How evaluations work
Strauss and Burton say that, in their dozen or so engagements so far, they typically have worked with non-strategic investors – parties from outside of the operator space who are looking to buy their way in or augment existing communications holdings. However, they note that the sell side also could benefit from an independent evaluation that documents the quality and potential value of their network.
Broadband Success Partners works alongside other, larger consultants who advise the prospective investor on valuations, market size, competitive analysis, and other business-related matters. In fact, much of their recent work has come at the recommendation of the larger firms with whom they’ve collaborated previously. When choosing a consultant for a network infrastructure assessment, Strauss and Burton recommend working with an evaluator with contemporary experience in the field; recent retirees with engineering backgrounds from the types of companies under evaluation fit this criterion nicely, they say. The ability to translate the technical parameters of the acquisition target’s network into terms the investor can understand and relate them to business goals also can prove important.
The network technology assessments are two-phased affairs. The first phase, which could take two or three weeks, involves document analysis and interviews with executives and staff at the acquisition target. It will cover such aspects as basic information about inside and outside plant, the organizational structure, the OSS/BSS, capital budgets, capital maintenance, trouble call history and service records. The second phase involves an on-site visit to evaluate the state of the network infrastructure. As they’re called after the prospective buyer expresses interest, Strauss and Burton say they have the full cooperation of the network operator during the review.
Overall, the process can take five or six weeks. What the final report entails depends on the type of network involved and what the potential acquirer hopes to do with it. “It’s not unusual for a client to say, ‘assess this asset, inside plant, outside plant,’ but also, if it’s currently a coax network they want us to analyze coax upgrade options as well as fiber to the home. What’s the associated cost to do that?” Strauss explains. “There was one engagement not long ago where Jack actually did an assessment of five or six different upgrade paths.”
If parts of a network operator’s footprint are supplied through contracts with others, those indefeasible rights of use (IRUs) deserve close scrutiny. “IRUs are extremely important and need to be analyzed very thoroughly because there are dependencies and co-dependencies that, going forward, the perspective investor needs to be eyes wide open about, if you will. You don’t want any gotchas down the road around these IRUs,” says Strauss.
Other questions a good technical assessment should answer include:
- Who the equipment suppliers are and do they offer a credible upgrade path on the installed systems?
- Was the equipment installed properly?
- What are the costs of potential construction -- labor and materials?
- Is the operator’s technical team up to the task of maintaining and expanding the network?
“These investors generally view the purchase as a platform upon which to grow the business. Not just in the existing footprint necessarily, but adjacent markets, carveouts, and so forth,” Strauss concludes. “It’s important for all of the advisors, technical and nontechnical, to give a thorough evaluation and assessment of the ability to do that. What’s the effort required to do that and what’s the potential growth opportunity?”
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